Royal Mail pension fund assets and liabilities are set to be transferred to the government
next month, subject to EU approval, the BBC understands.

The move means that Royal Mail pensioners will enjoy a state guarantee of their retirement
benefits.

It also paves the way for the eventual privatisation of the Royal Mail.

The transfer - which was backed by the Communication Worker's Union - will provide
a windfall gain to the government's budget of about £28 bn.

That is because of the accounting treatment of the pension fund.

The £28 bn of assets will result in an immediate one-for-one reduction in the budget
deficit.

The pension fund's £37.5bn liabilities, in contrast, will only show up in the deficit
over the next 20 to 30 years.

The pension liabilities are treated similarly to the unfunded pension schemes of
the National Health Service or armed forces, and are not considered an immediate
debt of the government for accounting purposes.

The resulting £28 bn windfall is the equivalent of almost 2% of the UK's gross domestic
product - the value of everything produced by the British economy in one year.

A Treasury spokesman told the us that the money will be used to cut the deficit,
and not be used for any giveaways.

The pension transfer removes one of the biggest obstacles to the government's planned
privatisation of Royal Mail.

BBC business correspondent Joe Lynam said: "The government is not commenting on what
this move means for the privatisation plans of the Royal Mail.

"But it's safe to say that this is a giant leap towards the sale of Royal Mail as
it removes the one major barrier: massive pension liabilities."

It is still subject to approval by the European Commission, which needs to confirm
that it does not breach state aid rules - something that is expected to come next
week.

The Communication Workers Union (CWU), representing postal workers, said it saw the
government taking on Royal Mail's pension liabilities as a great success.

"We've been campaigning for this for years," a spokesman told the us. "When we first
suggested it, we were laughed at. It's important that pensions are protected."

However, the CWU remains opposed to privatisation.

"It's not in interests of the public, customers or postal workers," the spokesman
said.